TUPE and offshoring

30 January 2018

In a recent case, the Employment Appeal Tribunal (“EAT”) was asked to consider the application of TUPE in the context of an offshoring of services and whether a transferring employee was entitled to protection of his salary terms if he relocated to the new place of operations in the transferee’s home jurisdiction.

Facts of the case

Mr Zeb was employed in a finance accounting team from 2009 and his employment transferred under TUPE to Xerox UK Ltd in 2011. His contractual place of work was “Leeds or Wakefield”.

In 2014, the finance accounting team function was offshored from Xerox UK to Xerox in the Philippines. Xerox believed that TUPE would apply to transfer the employees’ employment, and the employees’ place of work would remain in Wakefield. Because Xerox Philippines had no requirement for Wakefield-based employees doing finance accounting work, it considered that employees who TUPE-transferred would be redundant.

Xerox UK therefore gave the employees a choice of objecting to transfer and being made redundant by Xerox UK with an enhanced package, or TUPE-transferring and being made redundant by Xerox Philippines with only a statutory redundancy package. A further option was to relocate to Manila on local Philippines’ terms and conditions which were (unsurprisingly) considerably less generous.

Mr Zeb believed that TUPE entitled him to relocate to Manila while otherwise remaining employed on his UK terms and conditions. Xerox disagreed, asserting that any TUPE transfer was on the UK terms in their entirety, including the work-location clause stating Leeds or Wakefield. Mr Zeb did not object to transfer, so Xerox Philippines made Mr Zeb redundant after the transfer and paid him his statutory entitlements only.

Hearing Mr Zeb’s unfair dismissal claim, the Employment Tribunal (“ET”) found that Mr Zeb had agreed to vary his workplace to Manila - as permitted by TUPE - and so had been entitled to transfer there with his TUPE-protected terms and conditions, including salary. In such circumstances, Mr Zeb’s dismissal had been automatically unfair because it was not on the ground of redundancy, but rather Xerox Philippines’ refusal to employ him in Manila on his UK salary.

What did the EAT decide?

The EAT allowed Xerox’s appeal, pointing out that the effect of TUPE is to preserve an employee’s rights after transfer, including rights about pay and work location. Xerox Philippines had been required under TUPE to employ Mr Zeb at Wakefield and to pay his salary, but it had not been required to employ him in Manila at the same salary.

The EAT said that TUPE permits variation of contracts, but the changes must be agreed by both employee and employer. Xerox had proposed relocation on local terms, whereas Mr Zeb had only been prepared to move if he retained his UK terms. There was never a meeting of the minds between the parties and, in the absence of clear agreement, there was no contractual variation. TUPE did not entitle Mr Zeb unilaterally to vary the contractual workplace location while protecting his salary.

The EAT criticised the ET for focusing on the reason why Xerox refused to employ Mr Zeb in Manila, rather than applying the statutory test for redundancy. If it had applied the latter test, it would have concluded that the reason for dismissal was that Xerox Philippines’ requirements for employees to carry out finance accounting work in Wakefield had ceased or diminished. The ET should then have considered whether the principal reason for dismissal had been the TUPE transfer (or, as Xerox contended, redundancy).

The EAT commented that it felt Xerox had a strong case for an “ETO” (economic, technical or organisational reason) defence, but sent the case back to a differently constituted tribunal to decide the reason for dismissal and whether it had been fair.

Implications

The EAT’s decision seems entirely sensible and is consistent with the interpretation favoured by most commentators of how TUPE applies in this type of situation. TUPE cross-border concerns have become more acute in recent times, with businesses increasingly offshoring services to lower-cost jurisdictions. (The issue is less likely to arise on a business sale, because the undertaking is normally geographically static.)

The new overseas service provider may not recognise the applicability of TUPE: it does not normally want or need the employees concerned and it will almost certainly be uncommercial to maintain their terms. The offer made by the transferee in this case was, in effect, an offer of alternative employment in Manila but on reduced salary. The employee was entitled to reject this and be made redundant, but not to demand to transfer on his existing terms.

Offshoring may still create the unenviable scenario that neither the transferor nor the transferee is prepared to bear the cost and procedural responsibility for making the redundancies resulting from a cross-border service provision change. Employees may find themselves in a situation where the new provider denies responsibility, refusing to pay them notice or redundancy pay, and they then have to try to enforce judgment against an overseas employer. In practice, a commercial solution is usually found - the transferor often takes responsibility, with cost and risk-sharing being contractually agreed behind the scenes.

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